The dollar hit multi-year highs on Tuesday against the risk-sensitive Australian and kiwi dollars and the yen hovered near the level that triggered the intervention as concerns over rising interest rates and geopolitical tensions destabilized markets. investors.
Strong US jobs data and a forecast that inflation numbers will remain stubbornly high on Thursday have all but wiped out bets on anything but high interest rates through 2023 and drive the dollar back towards multi-decade highs.
Risk appetite was also hurt on Tuesday after Russia rained missiles on Ukrainian towns on Monday in retaliation for an explosion that damaged the only bridge connecting Russia to the annexed Crimean peninsula.
Sim Moh Siong, currency strategist at the Bank of Singapore, said things were still uncertain due to geopolitical risks such as war in Ukraine, escalating US-China tensions and a sell-off in gilts on Monday. “This new wall of worry is likely to keep the dollar supportive,” he said, but warned there could be a slight rally in risky assets.
The U.S. dollar index rose 0.24% to 113.34, closing in on the 20-year high of 114.78 it hit late last month. The yen hit 145.80 to the dollar overnight, just 10 pips from the 24-year low it hit before the Japanese government stepped in to support it three weeks ago.
Japan returned from vacation on Tuesday and the yen sat at 145.69. Fear of intervention has kept the yen firm in recent weeks, but as it rebounds to multi-decade lows, analysts remain unconvinced it can hold the line.
“The most important context is that the intervention is unlikely to reverse the short-term trend of an upward bias towards the dollar/yen,” added Sim.
The risk-sensitive Australian dollar hit a 2.5-year low at $0.628 on Monday and hovered at $0.627 on Tuesday. Analysts at National Australia Bank said the Aussie was the “leader” of the market in a selloff and further declines were possible in the near term as sentiment is fragile.
The New Zealand dollar also hit a 2.5-year low at $0.555 on Monday and is poised to break its pandemic low, with weak data from China further worsening the mood.
“Our forecast that the global economy will enter recession next year is consistent with further dollar gains,” said Commonwealth Bank of Australia strategist Carol Kong.
UK markets remain jittery and not quite soothed by the Bank of England stepping up bond purchases and Finance Minister Kwasi Kwarteng promising to deliver budget announcements. Gilts sold off sharply overnight, pushing longer-term US Treasury yields higher. Yields on 30-year bonds jumped 11 basis points to their highest level in nearly nine years at 3.956%.
The pound was also wobbly, slipping to a 10-day low of $1.1027 on Monday. The pound was down 0.31pc at $1.1025 on Tuesday. The euro fell 0.22pc to $0.968, heading for a fifth straight session of declines and drifting to the 20-year low it hit on September 26.